The Cyprus State Scholarships Foundation (IKYK) was slammed by the Audit Office on Wednesday for approving scholarships without first securing the necessary funding.

The office said the decision created financial commitments that exceeded the organisation’s available budget and highlighted weaknesses in its governance.

In a special report published on Wednesday covering the period 2019-2024, the Audit Office said the foundation’s board increased the number of scholarships and amended eligibility criteria without ensuring sufficient budget appropriations were in place, despite the long-term financial implications of those decisions. 

According to the report, the foundation is almost entirely funded through government grants, which account for 99.9 per cent of its income, while scholarship applications have risen steadily in recent years. Applications reached 1,942 during the 2023-2024 academic year, the highest number recorded during the period under review.

The report focuses on the foundation’s decision to award scholarships to all eligible applicants under its excellence programme for the 2023-2024 academic year, creating obligations for an additional 344 students without the necessary funding.

According to the Audit Office, the decision prompted the finance ministry to initially reject the foundation’s request for additional funding. Following negotiations, public debate and discussions in parliament, the government eventually approved supplementary funding through a revised budget. However, the report notes that the additional funding covered only the first year of studies, while the decision committed the foundation to funding the students until they complete their degrees. 

The report also points out that, under the scholarship scheme’s own rules, meeting the eligibility criteria does not automatically entitle an applicant to receive a scholarship if available funds are exhausted. In such cases, awards should be made according to applicants’ ranking, adding that pressure to award scholarships beyond the available budget “does not constitute good practice”. 

While acknowledging that the board’s intention was to support as many students as possible, the Audit Office said future decisions with financial implications should be based on proper planning and agreed in advance with the finance ministry.

The report also identified significant weaknesses in the foundation’s internal controls.

An audit of a random sample of 23 applications found five cases where scholarships had been scored incorrectly, either because of human error or faults in the foundation’s electronic assessment system. In one case, a system configuration error resulted in two eligible applicants being wrongly denied scholarships, with no attempt made afterwards to compensate them. 

The Audit Office also found there was no secondary review of application assessments, raising the risk of errors, while five of the 20 appeals it examined were upheld because the original applications had been incorrectly assessed. It further identified inadequate separation of duties among staff and weaknesses in the foundation’s internal control procedures. 

Among its recommendations, the Audit Office called for a targeted excellence scholarship programme offering more substantial funding in strategic fields linked to Cyprus’ long-term development needs. It suggested recipients could commit to returning to Cyprus after completing their studies or contributing to the country through research, education or other forms of knowledge transfer. 

The report also recommends examining the merger of the State Scholarships Foundation with the government’s grants and benefits service, arguing that a single body would simplify procedures for students and parents while reducing administrative duplication and improving the management of public funds. The finance ministry has indicated it intends to carry out a feasibility study into such a merger. 

Finally, the Audit Office said it may publish a separate report on the lease of a building later donated to the foundation, a matter that was not examined as part of the current audit.